Factoring and purchase order funding

Factoring and Purchase Order Funding as an Alternative to new investors

Factoring = Short term advance on the money that a buyer owes you.
Purchase Order Funding = Money loaned to get products made for orders you have in hand.

Both reduce the need for investors.
Both require extensive Due Diligence investigation of all parties by the loaning company.

Suffering from a shortage of Working Capital is something that most businesses endure at some point or another. Diagnosing the ailment is one thing, having a cure available is another and, to continue the analogy further, inoculating oneself against the contagion before it strikes is something that usually does not get done until the threat is upon us. Ask most folk to define the concept of Working Capital and you are likely to receive an answer that is short on understanding. Nonetheless, one can certainly suffer the effects of a malady without necessarily knowing its name. So, if one does not understand the concept, it is to be expected that to plan for a shortage is something beyond the ability of most, other than financial specialists.

Defining Working Capital in accounting parlance is easy: It is the difference between the total of Current Assets and Current Liabilities (assuming that assets are greater than liabilities, of course). That is only a measure at one instant in time and, if one is unfamiliar with the language of accounting, defining it in this way is useless. So, without wishing to keep you in the dark any longer, just understand that Working Capital is the cash available to a business on a day-to-day basis to cover bills such as Payroll, Utilities, Supplies, and any of the other many expenses that businesses have to pay for on a routine basis to stay in business. Being short of cash to make payroll is to be short of Working Capital, being short of cash to pay for inventory is to be short of Working Capital and to be short of cash to pay the Phone bill can be the kiss of death, as the Phone companies don’t give us too much time in which to pay our bills before cutting us off.

I guess that, having given you the above information, you are able to conclude that being short of cash to acquire new Plant and Equipment, being short of cash to buy a new truck or, for that matter, to buy a piece of Real Estate is not the same as being short of Working Capital. Sure, you are short of funds, but in these cases, you are short of Long Term funds, the sources of which are usually different.

Of course, any business that is profitable and does not consume all its profit from year to year will ultimately accumulate cash as profits ultimately turn into cash and this store of cash might then be used for Working Capital purposes or the acquisition of Fixed Assets or the like.

If one’s business is short of working capital, one has to raise it from outside the business. There may be various sources (for example, a Bank Loan), but in many cases today a loan from the bank is something beyond the reach of many businesses.

Factoring is one of the financial tools available to secure an adequate and steady stream of Working Capital for a business. It is a source of funds whose amount is limited only to the value of sales generated by a client selling to its business customers. Unlike Bank loans, whose amounts are set at some finite level, Factoring companies are delighted to extend more funding as a company generates additional sales. The result is that growth is easily funded and the dreaded specter of “Booming into Bankruptcy” is never present. In addition, Factoring companies are expert in assessing and evaluating the credit-worthiness of existing and potential customers for their clients. We protect our clients from selling to customers who do not have the requisite ability to pay their bills. Factoring companies bring a team of experts to bear on the receivables of  any client and provide services behind the scenes that can save clients much money: Factoring companies monitor the outstanding receivables and make collection calls, they send out Statements to their clients’ customers showing balances unpaid, and by virtue of their nature, provide their clients with a completely out-sourced Receivables function that saves clients time, manpower, payroll and most importantly, ensures a constant and steady source of Working Capital.

It is easy to see the benefits: Clients do not have to relinquish any stockholding or control of their businesses in order to induce outsiders to provide funds for them. They do not have to jump through hoops with their bank each time an existing line of credit becomes too small. They do not have to suffer the iniquities of having to repay a bank loan once a year or at any time.

If your company is in the favored position of having obtained a large Purchase Order from a new customer, there is no need for you to be concerned about the ability to service the PO. Many Factoring companies provide Purchase Order Funding so that large new orders can be financed easily and opportunity for expansion into new markets is not lost or sacrificed.

Edited and Shared by David Bruce Savage 404 323-8686  dave@davesavage.com

To learn and confirm valuable information from experts who help inventors.

Dave is the founder and advisor at the Inventor’s Education Forum in Jacksonville Florida

Learning and Confirming gatherings and website for independent product developers.
InventorsEducationForum.org